Monday, June 8, 2009

Expedia and Orbitz as tax authorities

FOR years, online travel companies like Expedia, Orbitz, Travelocity and others have successfully defended one of their most profitable practices: capturing the sizable difference between what they charge customers for taxes on hotel rooms and taxes the companies actually pay.

But threats to this enviable income stream are mounting.

On May 28, for example, a Washington State court ruled in a consumer class-action case filed against Expedia that the company’s fee disclosures breached its contract with customers. ...

Those matters revolve around what happened when Expedia bought blocks of hotel rooms at a wholesale price struck with the property’s operator. When it resold those rooms to online customers, Expedia paid so-called bed taxes based on the wholesale price of the rooms. But it collected taxes from its customers on a higher retail price for the rooms that it did not pay.

Expedia then pocketed the difference as part of a single charge it called a “taxes and service fee.”--Gretchen Morgenson, NYT, on non-government taxes